valid as on 22/08/2019

Section 177. Audit Committee

Regulation 18 , 22 of LODR

(1) The  of every listed company and such other class or classes of companies, , shall constitute an Audit Committee.

(2) The Audit Committee shall consist of a minimum of three directors  

Provided that majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the .

(3) Every Audit Committee of a company existing immediately before the commencement of this Act shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).

(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by the Board which shall, inter alia, include,—

(i)  of auditors of the company;

(ii) review and monitor the auditor’s independence and performance, and effectiveness of audit process;

(iii) examination of the financial statement and the auditors’ report thereon;

(iv) approval or any subsequent modification of transactions of the company with ;

 that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions ;

in case of transaction, other than transactions referred to in section 188, and where Audit Committee does not approve the transaction, it shall make its recommendations to the Board:

 in case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit Committee and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it:

 the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 188, between a  and its wholly owned subsidiary company.

(v) scrutiny of inter-corporate loans and investments;

(vi) valuation of undertakings or assets of the company, wherever it is necessary;

(vii) evaluation of internal financial controls and risk management systems;

(viii) monitoring the end use of funds raised through public offers and related matters.

(5) The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board and may also discuss any related issues with the internal and statutory auditors and the management of the company.

(6) The Audit Committee shall have authority to investigate into any matter in relation to the items specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain professional advice from external sources and have full access to information contained in the records of the company.

(7) The auditors of a company and the  shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.

(8) The Board’s report under sub-section (3) of section 134 shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor.

(9) Every listed company or such class or classes of companies, as may be prescribed, shall establish a vigil mechanism for directors and employees to report genuine concerns in such manner

(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases:

Provided that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.

This section is not applicable for specified IFSC Public Companies vide Exemption Notification to specified IFSC Public Companies, GSR 08 (E) dated 04.01.2017. To view the notification Click Here
2(10) Board of Directors, in relation to a company, means the collective body of the directors of the company
Substituted vide Companies (Amendment) Act, 2017 dated 03.01.2018, Effective from 7th May,2018
To view commencement notification,Click Here
To view the notification of Companies Amendment Act,2017 Click Here
Refer Rule 6-Companies (Meetings of Board and its Powers) Rules,2014.To view the rule,Click Here
 In respect of section 8 companies, the words “with independent directors forming a majority” shall be omitted vide notification no. G.S.R. 466(E) dated 5th June, 2015. To view the notification,Click Here
2(40) Financial Statement in relation to a company, includes—

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to one person company, small company, dormant company and private company (if such private company is a start-up)may  not include the cash flow statement;

Explanation. – For the purposes of this Act, the term ‘start-up’ or “start-up company” means a private company incorporated under the Companies Act, 2013 (18 of 2013) or the Companies Act, 1956 (1 of 1956) and recognised as start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry. 

For Government Company, in section 177(4)(i), for the words “recommendation for appointment, remuneration and terms of appointment” the words “recommendation for remuneration” shall be substituted vide notification no. G.S.R. 463(E) dated 5th June, 2015.

(The exceptions, modifications and adaptations provided above shall be applicable only to those Government Companies which has not committed a default in filing its financial statements under section 137 of the said act or annual return under section 92 of the said act with the registrar, vide notification dated 13th June, 2017)

To view the notification,Click Here

2(76) Related Party, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager or his relative is a member or director;

(v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(viii) any body corporate which is—

(A) a holding, subsidiary or an associate company of such company;

(B) a subsidiary of a holding company to which it is also a subsidiary; or

(C) an investing company or the venturer of a company;

Explanation.—For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.

(ix) such other person as may be prescribed.

Proviso inserted vide Companies Amendment Act,2015. And effective from 14-12-2015, vide notification S.O 3388(E). To view the notification,Click Here
Refer Rule 6A-Companies (Meetings of Board and its Powers)Second Amendment Rules, 2015.To view the rule,Click Here
Inserted vide Companies (Amendment) Act, 2017 dated 03.01.2018, Effective from 7th May,2018.
To view commencement notification,Click Here
To view the notification of Companies Amendment Act,2017 Click Here
Inserted vide Companies (Amendment) Act, 2017 dated 03.01.2018 Effective from 7th May,2018.
To view commencement notification,Click Here
To view the notification of Companies Amendment Act,2017 Click Here
Inserted vide Companies (Amendment) Act, 2017 dated 03.01.2018, Effective from 7th May,2018
To view commencement notification,Click Here
To view the notification of Companies Amendment Act,2017 Click Here
2(46) Holding Company, in relation to one or more other companies, means a company of which such companies are subsidiary companies.

Explanation.- For the purposes of this clause, the expression “company” includes any body corporate;

2(51) Key Managerial Personnel, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer;

(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and

(vi) such other officer as may be prescribed;

Refer Rule 7-Companies (Meetings of Board and its Powers) Rules,2014.To view the rule,Click Here

11.1.4-Companies (Appointment and Qualification of Directors) Rules,2014

4. Number of Independent directors.—

The following class or classes of companies shall have at least two directors as independent directors

(i) the Public Companies having paid up share capital of ten crore rupees or more; or

(ii)the Public Companies having turnover of one hundred crore rupees or more; or

(iii)the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

Provided that in case a company covered under this rule is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it:

Provided further that any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later:

Provided also that where a company ceases to fulfil any of three conditions laid down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions;

Explanation. For the purposes of this rule, it is here by clarified that, the paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be taken into account:

Provided that a company belonging to any class of companies for which a higher number of independent directors has been specified in the law for the time being in force shall comply with the requirements specified in such law.

The following classes of unlisted public company shall not be covered under sub-rule (1), namely:-

(a) a

(b) a wholly owned subsidiary; and

(c) a dormant company as defined under section 455 of the Act

This sub-rule is numbered vide Companies (Appointment and Qualification of Directors) Amendment Rules, 2017 dated 05.06.2017 . To view the notification,Click Here
Inserted  vide Companies (Appointment and Qualification of Directors) Amendment Rules, 2017 dated 05.06.2017 . To view the notification,Click Here
The term joint venture is clarified vide circular no. 9/2017 dated 5th September 2017. To view the circular,Click Here

12.1.6-Companies (Meetings of Board and its Powers) Rules,2014

6. Committees of the Board.-

The Board of directors of every listed company  and a company covered under rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an ‘Audit Committee’ and a ‘Nomination and Remuneration Committee of the Board.

 The Board of directors of every listed companies and the following classes of companies shall constitute an Audit Committee and a Nomination and Remuneration Committee of the Board

(i) all public companies with a paid up capital of ten crore rupees or more;

(ii) all public companies having turnover of one hundred crore rupees or more;

(iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more.

Explanation.– The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.

  that public companies covered under this rule which were not required to constitute Audit Committee under section 292A of the Companies Act, 1956 (1 of 1956) shall constitute their Audit Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier:

that public companies covered under this rule shall constitute their Nomination and Remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier.

 Omnibus approval for related party transactions on annual basis.-
All related party transactions shall require approval of the Audit Committee and the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to the following conditions, namely:-
(1) The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for making the omnibus approval which shall include the following, namely:-
(a) maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;
(b) the maximum value per transaction which can be allowed;
(c) extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;
(d) review, at such intervals as the Audit Committee may deem fit, related party
transaction entered into by the company pursuant to each of the omnibus approval made.

(e) transactions which cannot be subject to the omnibus approval by the Audit Committee.

(2) The Audit Committee shall consider the following factors while specifying the criteria for making omnibus approval, namely: –
(a) repetitiveness of the transactions (in past or in future);
(b) justification for the need of omnibus approval.
(3) The Audit Committee shall satisfy itself for transactions of repetitive nature and that the company.
(4) The omnibus approval shall contain or indicate the following: –
(a) name of the related parties:
(b) nature and duration of the transaction;
(c) maximum amount of transaction that can be entered into;
(d) the indicative base price or current contracted price and the formula for variation in the price, if any; and
(e) any other information relevant or important for the Audit Committee to take a decision on the proposed transaction:
Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may make omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.
(5) Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after the expiry of such financial year.
(6) Omnibus approval shall not be made for transactions  in respect of selling or disposing of the undertaking of the company .
(7) Any other conditions as the Audit Committee may deem fit.”

Substituted vide Companies (Meetings of Board and its Powers) Second Amendment Rules, 2017 . To view the notification,Click Here
Substituted vide Companies (Meetings of Board and its Powers) Amendment Rules, 2018 dated 07.05.2018 . To view the notification,Click Here
Substituted vide Companies (Meetings of Board and its Powers) Second Amendment Rules, 2017 . To view the notification,Click Here
Proviso inserted by notification no. G.S.R. 398(E) dated 12 June 2014. To view the notification,Click Here
Proviso inserted by notification no. G.S.R. 398(E) dated 12 June 2014. To view the notification,Click Here
Inserted vide Companies (Meetings of Board and its Powers) Second Amendment Rules, 2015 vide notification dated 14th December,2015. To view the notification,Click Here

12.1.7-Companies (Meetings of Board and its Powers) Rules,2014

7. Establishment of vigil mechanism.-

(1) Every listed company and the companies belonging to the following class or classes shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances-

(a) the Companies which accept deposits from the public;

(b) the Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.

(2) The companies which are required to constitute an audit committee shall oversee the vigil mechanism through the committee and if any of the members of the committee have a conflict of interest in a given case, they should recuse themselves and the others on the committee would deal with the matter on hand.

(3) In case of other companies, the Board of directors shall nominate a director to play the role of audit committee for the purpose of vigil mechanism to whom other directors and employees may report their concerns.
(4) The vigil mechanism shall provide for adequate safeguards against victimisation of employees and directors who avail of the vigil mechanism and also provide for direct access to the Chairperson of the Audit Committee or the director nominated to play the role of Audit Committee, as the case may be, in exceptional cases.

(5) In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand.


Commencement Notification dated 07/05/2018


Companies (Meetings and Powers of Board) Amendment Rules, 2014 [GSR 398 E] dated 12/06/2014


Companies (Meetings of Board and its Powers) Amendment Rules, 2018 [GSR 429(E)] dated 07/05/2018


Companies (Meetings of Board and its Powers) Second Amendment Rules, 2015 [G.S.R. 971 (E)] dated 14/12/2015


Companies (Meetings of Board and its Powers) Second Amendment Rules, 2017 dated 13/07/2017


Enforcement Notification [S.O 3388(E)] dated 14/12/2015


Enforcement Notification S.O. 1440(E) dated 29/05/2016


Enforcement Notification S.O. 902(E) dated 26/03/2014


Exemption to Govt Companies G.S.R. 463(E) dated 05/06/2015


Exemption to Specified IFSC Public company [GSR 08(E)] dated 04/01/2017


Exemptions to Government Companies [Amendment to GSR 463(E)] dated 13/06/2017


Exemptions to Section 8 companies [GSR 466 (E)] dated 05/06/2015


The Companies (Amendment) Act, 2017 (Effective from 03.01.2018)


The Companies (Amendment) Act,2015

 


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